Kraft Heinz Reports Second Quarter 2017 Results

Q2 diluted EPS increased to $0.94; Adjusted EPS(1)
increased to $0.98, up from $0.85 the prior year

PITTSBURGH & CHICAGO--(BUSINESS WIRE)--
The Kraft Heinz Company (NASDAQ: KHC) ("Kraft Heinz" or the "Company")
today reported second quarter 2017 financial results that reflected
significant gains from cost savings initiatives and benefits from the
redemption of preferred stock in the prior year that were partially
offset by the impact of lower net sales.

"As expected, our second quarter results were sequentially better than
our first quarter, and we expect this momentum to continue into the
second half of the year," said Kraft Heinz CEO Bernardo Hees. "Our plan
from the start has been to drive strong cost savings to fuel investments
in people, capabilities and brands that can lead to sustainable,
profitable growth. That's what we see happening now, and expect to
continue going forward."

Q2 2017 Financial Summary

For the Three Months Ended

Year-over-year Change

July 1, 2017

July 3, 2016

Actual

Impact of Currency

Organic

(in millions, except per share data)

Net sales

$

6,677

$

6,793

(1.7

)%

(0.8

) pp

(0.9

)%

Operating income

1,921

1,636

17.5

%

Net income/(loss) attributable to common shareholders

1,159

770

50.5

%

Diluted EPS

$

0.94

$

0.63

49.2

%

Adjusted EBITDA(1)

2,101

2,087

0.7

%

(1.2

) pp

Adjusted EPS(1)

$

0.98

$

0.85

15.3

%

Net sales were $6.7 billion, down 1.7 percent versus the year-ago
period, including an unfavorable 0.8 percentage point impact from
currency. Organic Net Sales decreased 0.9 percent versus the year-ago
period. Pricing was 0.4 percentage points lower as timing of promotions
in North America and Europe more than offset price increases in Rest of
World markets, primarily Latin America. Volume/mix decreased 0.5
percentage points as growth in condiments and sauces in all business
segments was more than offset by lower shipments in cheese, meats and
foodservice in the United States.

Net income attributable to common shareholders increased to $1.2 billion
and diluted EPS increased to $0.94, primarily driven by lower
Integration Program and restructuring costs, benefits from the
refinancing of Series A Preferred Stock and a lower effective tax rate.
Adjusted EBITDA increased 0.7 percent versus the year-ago period to $2.1
billion, despite an unfavorable 1.2 percentage point impact from
currency. Excluding the impact of currency, the increase in Adjusted
EBITDA reflected incremental gains from cost savings initiatives(2)
that were partly offset by a combination of factors that included higher
input costs, lower net sales as well as business investments in Rest of
World markets. Adjusted EPS increased 15.3 percent versus the year-ago
period to $0.98, primarily due to benefits from the refinancing of
Series A Preferred Stock and lower taxes.

Q2 2017 Business Segment Highlights

United States

For the Three Months Ended

Year-over-year Change

July 1, 2017

July 3, 2016

Actual

Impact of Currency

Organic

(in millions)

Net sales

$

4,634

$

4,692

(1.2

)%

0.0 pp

(1.2

)%

Segment Adjusted EBITDA

1,566

1,518

3.2

%

0.0 pp

United States net sales were $4.6 billion, down 1.2 percent versus the
year-ago period. Pricing decreased 0.4 percentage points reflecting
timing of trade promotion recognition in the prior year that more than
offset price increases in cheese. Volume/mix decreased 0.8 percentage
points as the benefit from a shift in Easter-related sales as well as
gains in frozen, macaroni and cheese, and condiments and sauces were
more than offset by select distribution losses in cheese and meats as
well as lower shipments in foodservice.

United States Segment Adjusted EBITDA increased 3.2 percent versus the
year-ago period to $1.6 billion, driven by gains from cost savings
initiatives that were partially offset by unfavorable key commodity(3)
costs, particularly in cheese and coffee, as well as lower net sales.

Canada Segment Adjusted EBITDA decreased 1.2 percent versus the year-ago
period to $189 million, including an unfavorable 3.5 percentage point
impact from currency. Excluding the impact of currency, Segment Adjusted
EBITDA increased 2.3 percentage points as gains from cost savings more
than offset the impact of lower pricing.

Europe

For the Three Months Ended

Year-over-year Change

July 1, 2017

July 3, 2016

Actual

Impact of Currency

Organic

(in millions)

Net sales(4)

$

595

$

625

(4.9

)%

(4.1

) pp

(0.8

)%

Segment Adjusted EBITDA(4)(5)

202

221

(8.6

)%

(6.2

) pp

Europe net sales were $595 million, down 4.9 percent versus the year-ago
period, including a negative 4.1 percentage point impact from currency.
Organic Net Sales were 0.8 percent lower than the year-ago period.
Pricing decreased 1.6 percentage points due to changes in promotional
spending levels versus the prior year, primarily in the UK and Italy.
Volume/mix increased 0.8 percentage points driven by strong consumption
gains in condiments and sauces and gains in foodservice that were
partially offset by shipment timing versus the prior year period as well
as ongoing consumption weakness in Italy.

Europe Segment Adjusted EBITDA decreased 8.6 percent versus the year-ago
period to $202 million, including a negative 6.2 percentage point impact
from currency. Excluding currency impacts, the decline in Segment
Adjusted EBITDA reflected cost savings that were more than offset by
higher input costs in local currency and lower pricing.

Rest of World(6)

For the Three Months Ended

Year-over-year Change

July 1, 2017

July 3, 2016

Actual

Impact of Currency

Organic

(in millions)

Net sales(4)

$

851

$

838

1.6

%

(1.4

) pp

3.0

%

Segment Adjusted EBITDA(4)

180

202

(11.6

)%

(3.0

) pp

Rest of World net sales were $851 million, increasing 1.6 percent versus
the year-ago period, despite an unfavorable currency impact of 1.4
percentage points. Organic Net Sales increased 3.0 percent versus the
year-ago period. Pricing increased 3.7 percentage points primarily
driven by actions to offset higher input costs in local currency,
particularly in Latin America. Volume/mix was 0.7 percentage points
lower as strong growth in condiments and sauces was more than offset by
a combination of significantly lower shipments in India, unfavorable
holiday-related shipment phasing in Indonesia, as well as the impact of
distributor network realignment in several markets.

Rest of World Segment Adjusted EBITDA decreased 11.6 percent versus the
year-ago period to $180 million, including an unfavorable 3.0 percentage
point impact from currency. Excluding the impact of currency, Segment
Adjusted EBITDA declined 8.6 percentage points, primarily due to the
decline in volume/mix, increased business investments to support growth
as well as higher input costs in local currency.

End Notes

(1)

Organic Net Sales, Adjusted EBITDA and Adjusted EPS are non-GAAP
financial measures. Please see discussion of non-GAAP financial
measures and the reconciliations at the end of this press release
for more information.

The Company's key commodities in the United States and Canada are
dairy, meat, coffee and nuts.

(4)

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World (as defined in note (6) below) to the Europe
segment. This change resulted in reclassification of net sales from
Rest of World to the Europe segment of $47 million and Segment
Adjusted EBITDA of $6 million for the second quarter ended July 3,
2016.

(5)

In the fourth quarter of 2016, management of our Global Procurement
Office ("GPO") moved from one of our European subsidiaries to our
global headquarters. This change resulted in the reclassification of
Segment Adjusted EBITDA from the Europe segment to general corporate
expenses of $3 million for the second quarter ended July 3, 2016.

(6)

Rest of World is comprised of two operating segments: Latin America;
and Asia Pacific, Middle East and Africa ("AMEA").

Webcast and Conference Call Information

A webcast of The Kraft Heinz Company's second quarter 2017 earnings
conference call will be available at ir.kraftheinzcompany.com. The call
begins today at 5:00 p.m. Eastern Time.

ABOUT THE KRAFT HEINZ COMPANY

The Kraft Heinz Company (NASDAQ: KHC) is the fifth-largest food and
beverage company in the world. A globally trusted producer of delicious
foods, The Kraft Heinz Company provides high quality, great taste and
nutrition for all eating occasions whether at home, in restaurants or on
the go. The Company's iconic brands include Kraft, Heinz, ABC,
Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell
House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero,
Smart Ones and Velveeta. The Kraft Heinz Company is dedicated
to the sustainable health of our people, our planet and our Company. For
more information, visit www.kraftheinzcompany.com.

Forward-Looking Statements

This press release contains a number of forward-looking statements.
Words such as "expect," "momentum," "continue," "forward," "remain,"
"execute," "expand," "drive," "believe," "will," and variations of such
words and similar expressions are intended to identify forward-looking
statements. Examples of forward-looking statements include, but are not
limited to, statements regarding the Company's plans, objectives, cost
savings, initiatives, opportunities, capabilities, investments,
execution and growth. These forward-looking statements are not
guarantees of future performance and are subject to a number of risks
and uncertainties, many of which are difficult to predict and beyond the
Company's control.

Important factors that may affect the Company's business and operations
and that may cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, increased
competition; the Company's ability to maintain, extend and expand its
reputation and brand image; the Company's ability to differentiate its
products from other brands; the consolidation of retail customers; the
Company's ability to predict, identify and interpret changes in consumer
preferences and demand; the Company's ability to drive revenue growth in
its key product categories, increase its market share or add products;
an impairment of the carrying value of goodwill or other
indefinite-lived intangible assets; volatility in commodity, energy and
other input costs; changes in the Company's management team or other key
personnel; the Company's inability to realize the anticipated benefits
from the Company's cost savings initiatives; changes in relationships
with significant customers and suppliers; execution of the Company's
international expansion strategy; changes in laws and regulations; legal
claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; failure to
successfully integrate the business and operations of the Company in the
expected time frame; the Company's ability to complete or realize the
benefits from potential and completed acquisitions, alliances,
divestitures or joint ventures; economic and political conditions in the
nations in which the Company operates; the volatility of capital
markets; increased pension, labor and people-related expenses;
volatility in the market value of all or a portion of the derivatives
that the Company uses; exchange rate fluctuations; risks associated with
information technology and systems, including service interruptions,
misappropriation of data or breaches of security; the Company's
inability to protect intellectual property rights; impacts of natural
events in the locations in which the Company or its customers, suppliers
or regulators operate; the Company's indebtedness and ability to pay
such indebtedness; tax law changes or interpretations; and other
factors. For additional information on these and other factors that
could affect the Company's forward-looking statements, see the Company's
risk factors, as they may be amended from time to time, set forth in its
filings with the Securities and Exchange Commission (the "SEC"). The
Company disclaims and does not undertake any obligation to update or
revise any forward-looking statement in this press release, except as
required by applicable law or regulation.

Non-GAAP Financial Measures

To supplement the financial information, the Company has presented
Organic Net Sales, Adjusted EBITDA, and Adjusted EPS, which are
considered non-GAAP financial measures. The non-GAAP financial measures
provided should be viewed in addition to, and not as an alternative for,
financial measures prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") that are
presented in this press release. The non-GAAP financial measures
presented may differ from similarly titled non-GAAP financial measures
presented by other companies, and other companies may not define these
non-GAAP financial measures in the same way. These measures are not
substitutes for their comparable GAAP financial measures, such as net
sales, net income/(loss), diluted earnings per share, or other measures
prescribed by GAAP, and there are limitations to using non-GAAP
financial measures.

Management uses these non-GAAP financial measures to assist in comparing
the Company's performance on a consistent basis for purposes of business
decision making by removing the impact of certain items that management
believes do not directly reflect the Company's underlying operations.
Management believes that presenting the Company's non-GAAP financial
measures is useful to investors because it (i) provides investors with
meaningful supplemental information regarding financial performance by
excluding certain items, (ii) permits investors to view performance
using the same tools that management uses to budget, make operating and
strategic decisions, and evaluate historical performance, and (iii)
otherwise provides supplemental information that may be useful to
investors in evaluating the Company's results. The Company believes that
the presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provides investors with additional
understanding of the factors and trends affecting the Company's business
than could be obtained absent these disclosures.

Organic Net Sales is defined as net sales excluding, when they occur,
the impact of acquisitions, currency, divestitures and a 53rd week of
shipments. The Company calculates the impact of currency on net sales by
holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela following the Company's June 28, 2015
currency devaluation, for which the Company calculates the previous
year's results using the current year's exchange rate. Organic Net Sales
is a tool that can assist management and investors in comparing the
Company's performance on a consistent basis by removing the impact of
certain items that management believes do not directly reflect the
Company's underlying operations.

Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes; in addition to these
adjustments, the Company excludes, when they occur, the impacts of
depreciation and amortization (excluding integration and restructuring
expenses) (including amortization of postretirement benefit plans prior
service credits), integration and restructuring expenses, merger costs,
unrealized losses/(gains) on commodity hedges, impairment losses,
losses/(gains) on the sale of a business, nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and equity award
compensation expense (excluding integration and restructuring expenses).
The Company also presents Adjusted EBITDA on a constant currency basis.
The Company calculates the impact of currency on Adjusted EBITDA by
holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela following the Company's June 28, 2015
devaluation of the Venezuelan bolivar and remeasurement of assets and
liabilities of its Venezuelan subsidiary, for which it calculates the
previous year's results using the current year's exchange rate. Adjusted
EBITDA is a tool that can assist management and investors in comparing
the Company's performance on a consistent basis by removing the impact
of certain items that management believes do not directly reflect the
Company's underlying operations.

Adjusted EPS is defined as diluted earnings per share excluding, when
they occur, the impacts of integration and restructuring expenses,
merger costs, unrealized losses/(gains) on commodity hedges, impairment
losses, losses/(gains) on the sale of a business, and nonmonetary
currency devaluation (e.g., remeasurement gains and losses), and
including when they occur, adjustments to reflect preferred stock
dividend payments on an accrual basis. The Company believes Adjusted EPS
provides important comparability of underlying operating results,
allowing investors and management to assess operating performance on a
consistent basis.

See the attached schedules for supplemental financial data, which
includes the financial information, the non-GAAP financial measures and
corresponding reconciliations for the relevant periods.

Schedule 1

The Kraft Heinz Company

Condensed Consolidated Statements of Income

(dollars in millions, except per share data)

(Unaudited)

For the Three Months Ended

For the Six Months Ended

July 1, 2017

July 3, 2016

July 1, 2017

July 3, 2016

Net sales

$

6,677

$

6,793

$

13,041

$

13,363

Cost of products sold(a)

3,996

4,262

8,059

8,454

Gross profit

2,681

2,531

4,982

4,909

Selling, general and administrative expenses(b)

760

895

1,510

1,760

Operating income

1,921

1,636

3,472

3,149

Interest expense

307

264

620

513

Other expense/(income), net

24

6

12

(2

)

Income/(loss) before income taxes

1,590

1,366

2,840

2,638

Provision for/(benefit from) income taxes

430

411

789

783

Net income/(loss)

1,160

955

2,051

1,855

Net income/(loss) attributable to noncontrolling interest

1

5

(1

)

9

Net income/(loss) attributable to Kraft Heinz

1,159

950

2,052

1,846

Preferred dividends(c)

—

180

—

180

Net income/(loss) attributable to common shareholders

$

1,159

$

770

$

2,052

$

1,666

Basic shares outstanding

1,218

1,217

1,218

1,216

Diluted shares outstanding

1,229

1,227

1,229

1,226

Per share data applicable to common shareholders:

Basic earnings/(loss) per share

$

0.95

$

0.63

$

1.69

$

1.37

Diluted earnings/(loss) per share

0.94

0.63

1.67

1.36

(a)

Integration and restructuring charges recorded in cost of products
sold resulted in a $59 million gain for the three months ended July
1, 2017 ($37 million after-tax), $199 million expense for the three
months ended July 3, 2016 ($137 million after-tax), $44 million for
the six months ended July 1, 2017 ($34 million after-tax), and $380
million for the six months ended July 3, 2016 ($259 million
after-tax).

(b)

Integration and restructuring expenses recorded in selling, general
and administrative expenses were $53 million in the three months
ended July 1, 2017 ($35 million after-tax), $85 million in the three
months ended July 3, 2016 ($59 million after-tax), $98 million in
the six months ended July 1, 2017 ($65 million after-tax), and $164
million in the six months ended July 3, 2016 ($112 million
after-tax).

(c)

On June 7, 2016, we redeemed all outstanding shares of our Series A
Preferred Stock, therefore we no longer pay any associated
dividends. Prior to the redemption, we made cash distributions of
$180 million in the six months ended July 3, 2016 related to the
Series A Preferred Stock dividend. There were no cash distributions
related to our Series A Preferred Stock for the three months ended
April 3, 2016 because, concurrent with the declaration of our common
stock dividend on December 8, 2015, we also declared and paid the
Series A Preferred Stock dividend that would otherwise have been
payable on March 7, 2016.

Schedule 2

The Kraft Heinz Company

Reconciliation of Net Sales to Organic Net Sales

For the Three Months Ended

(dollars in millions)

(Unaudited)

Net Sales

Impact of Currency

Organic Net Sales

Price

Volume/Mix

July 1, 2017

United States

$

4,634

$

—

$

4,634

Canada

597

(21

)

618

Europe

595

(25

)

620

Rest of World

851

(3

)

854

$

6,677

$

(49

)

$

6,726

July 3, 2016

United States

$

4,692

$

—

$

4,692

Canada

638

—

638

Europe(a)

625

—

625

Rest of World(a)

838

9

829

$

6,793

$

9

$

6,784

Year-over-year growth rates

United States

(1.2

)%

0.0

pp

(1.2

)%

(0.4

) pp

(0.8

) pp

Canada

(6.4

)%

(3.3

) pp

(3.1

)%

(3.7

) pp

0.6

pp

Europe(a)

(4.9

)%

(4.1

) pp

(0.8

)%

(1.6

) pp

0.8

pp

Rest of World(a)

1.6

%

(1.4

) pp

3.0

%

3.7

pp

(0.7

) pp

Kraft Heinz

(1.7

)%

(0.8

) pp

(0.9

)%

(0.4

) pp

(0.5

) pp

(a)

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World to the Europe segment. This change resulted in
reclassification of net sales from Rest of World to the Europe
segment of $47 million for the three months ended July 3, 2016.

Schedule 3

The Kraft Heinz Company

Reconciliation of Net Sales to Organic Net Sales

For the Six Months Ended

(dollars in millions)

(Unaudited)

Net Sales

Impact of Currency

Organic Net Sales

Price

Volume/Mix

July 1, 2017

United States

$

9,186

$

—

$

9,186

Canada

1,040

(7

)

1,047

Europe

1,138

(64

)

1,202

Rest of World

1,677

7

1,670

$

13,041

$

(64

)

$

13,105

July 3, 2016

United States

$

9,407

$

—

$

9,407

Canada

1,142

—

1,142

Europe(a)

1,208

—

1,208

Rest of World(a)

1,606

22

1,584

$

13,363

$

22

$

13,341

Year-over-year growth rates

United States

(2.4

)%

0.0

pp

(2.4

)%

0.1

pp

(2.5

) pp

Canada

(8.9

)%

(0.6

) pp

(8.3

)%

(2.5

) pp

(5.8

) pp

Europe(a)

(5.8

)%

(5.3

) pp

(0.5

)%

(1.1

) pp

0.6

pp

Rest of World(a)

4.4

%

(1.0

) pp

5.4

%

4.3

pp

1.1

pp

Kraft Heinz

(2.4

)%

(0.6

) pp

(1.8

)%

0.3

pp

(2.1

) pp

(a)

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World to the Europe segment. This change resulted in
reclassification of net sales from Rest of World to the Europe
segment of $77 million for the six months ended July 3, 2016.

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World to the Europe segment. This change resulted in
the reclassification of Segment Adjusted EBITDA from Rest of World
to the Europe segment of $6 million for the three months and $7
million for the six months ended July 3, 2016.

(b)

In the fourth quarter of 2016, management of our GPO moved from one
of our European subsidiaries to our global headquarters. This change
resulted in the reclassification of Segment Adjusted EBITDA from the
Europe segment to general corporate expenses of $3 million for the
three months and $5 million for the six months ended July 3, 2016.

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World to the Europe segment. This change resulted in
the reclassification of Segment Adjusted EBITDA from Rest of World
to the Europe segment of $6 million for the three months ended July
3, 2016.

(b)

In the fourth quarter of 2016, management of our GPO moved from one
of our European subsidiaries to our global headquarters. This change
resulted in the reclassification of Segment Adjusted EBITDA from the
Europe segment to general corporate expenses of $3 million for the
three months ended July 3, 2016.

In the fourth quarter of 2016, the Company moved the Russia business
from Rest of World to the Europe segment. This change resulted in
the reclassification of Segment Adjusted EBITDA from Rest of World
to the Europe segment of $7 million for the six months ended July 3,
2016.

(b)

In the fourth quarter of 2016, management of our GPO moved from one
of our European subsidiaries to our global headquarters. This change
resulted in the reclassification of Segment Adjusted EBITDA from the
Europe segment to general corporate expenses of $5 million for the
six months ended July 3, 2016.

Schedule 7

The Kraft Heinz Company

Reconciliation of Diluted EPS to Adjusted EPS

(Unaudited)

For the Three Months Ended

For the Six Months Ended

July 1, 2017

July 3, 2016

July 1, 2017

July 3, 2016

Diluted EPS

$

0.94

$

0.63

$

1.67

$

1.36

Integration and restructuring expenses(a)(b)

—

0.16

0.08

0.30

Merger costs(a)(b)

—

0.01

—

0.02

Unrealized losses/(gains) on commodity hedges(a)(b)

(0.01

)

(0.02

)

0.01

(0.03

)

Impairment losses(a)(b)

0.03

0.03

0.03

0.03

Nonmonetary currency devaluation(a)(c)

0.02

—

0.03

0.01

Preferred dividend adjustment(d)

—

0.04

—

(0.11

)

Adjusted EPS

$

0.98

$

0.85

$

1.82

$

1.58

(a)

Income tax expense associated with these items is based on
applicable jurisdictional tax rates and deductibility assessments of
individual items.

(b)

Refer to the reconciliation of net income/(loss) to Adjusted EBITDA
for the related gross expenses.

(c)

Nonmonetary currency devaluation includes the following gross
expenses/(income):

• Expenses recorded in cost of products sold of $2 million for the
three months and $3 million for the six months ended July 3, 2016
(there were no such expenses for the three and six months ended
July 1, 2017); and

• Expenses recorded in other expense/(income), net, of $25 million
for the three months and $33 million for the six months ended July
1, 2017 and $7 million for the three and six months ended July 3,
2016.

(d)

For Adjusted EPS, we present the impact of the Series A Preferred
Stock dividend payments on an accrual basis. Accordingly, we
included an adjustment to EPS to include $180 million of Series A
Preferred Stock dividends in the first quarter of 2016 (to reflect
the March 7, 2016 Series A Preferred Stock dividend that was paid in
December 2015), and to exclude $51 million of Series A Preferred
Stock dividends from the second quarter of 2016 (to reflect that it
was redeemed on June 7, 2016).